2014 outlook for housing

Much of the news and data points to a solid 2014 for new housing starts, however there are some leading indicators and market conditions that have many economists concerned.

We occasionally post news and observations about the US housing market. We think this is important because new home construction activity affects the cost of wood products and new home construction is a significant driver for the US economy, which hopefully translates to increase in demand for manufacturing.

After a brutal winter that delayed construction in the Midwest and East, housing starts have started to increase. According to USA today, housing starts rose 2.8% in March. Single family housing rose 6% from February.

The outlook for 2014 is largely positive, but there are concerns as well. Building permits which indicates future starts has been moving down recently. Material costs and labor shortages were cited as some of the reasons that builders are not jumping into the market as earlier expected. The starts for new homes while increasing is still well below expectations.

The Kiplinger article went on to cite the following reasons for their positive outlook:

Employment numbers are improving, always a key driver of the housing market.

There is a pent up demand from young people who either are living with their parents or sharing housing with others. As this group finds more jobs, they will be looking for new homes.

Housing prices rose significantly in 2014, so many potential home buyers who could not afford to move because there mortgage was underwater are seeing their home value rise above their debt. This group is expected to jump back into the market soon.

The long terms housing start graph below shows that the recovery trend continued, although we are still way below pre-recession numbers.

Housing Starts by Year – source is uscensus.gov

One can see from the graph that single family housing did not increase as fast as the rest of the housing market (2 units or more). Some of this trend may be due to baby boomers opting to move out of their high maintenance single unit dwelling and move to condominiums, townhomes or senior apartment facilities.

Below shows housing starts by month since January 2013.

The graph shows that housing starts are ahead of 2013 pace. If the rest of the year follows this trend then 2014 should be a good year for housing, however as stated previously some future metrics such as permits are causing some concern.